decimal points in placing limit orders on stocks

June 30, 2009 10:11 AM

Why doesn't Questrade let me place Limit Orders on stocks beyond two decimal points, when on these same stocks they display the price wth 4 decimal points?

For example, I wanted to place a Buy Limit Order on a stock, and entered a limit price of 1.1533. The order was rejected, but a order at 1.16 was accepted.

They display the current price at 1.1533, so why couldn't I BUY it at 1.1533?

posted by Penelope to work & money (8 comments total)

A limit order doesn't guarantee a trade at an exact price. It guarantees that it'll be the price you specify, or better.

Similarly, when you place a regular buy order (as in a "market buy"), you won't necessarily get the price quoted. You'll get the price at which your broker executed the trade on your behalf.

So it's not really surprising that your broker doesn't take limit orders to four decimal places--doing so would be meaningless.

The story would be different if you were running a major program trading strategy, but you also wouldn't be asking your question here or using a discount brokerage if that were the case.
posted by mullacc at 11:26 AM on June 30

I'm wondering if you might be looking at the VWAP or something other than the last trade. US stocks trade in round pennies, and the only price field on my quote screen that goes out further than two places is the VWAP (volume-weighted average price).
posted by malocchio at 11:45 AM on June 30

I'm in my Questrade account, and when I click for a quote, I get 4 decimals. For example FNM is right now 0.5813. Fannie Mae, that's a US stock.
posted by Penelope at 11:53 AM on June 30

For stocks priced at $1 or above, there's an SEC rule that prohibits exchanges, trading systems, brokers, etc. from accepting any bids or offers that are priced in more than two decimal places. So, for a stock trading at $1 or above, your broker can't accept a limit order from you that is priced with more than two decimal places.

However, the rule doesn't prohibit executions with more than 2 decimal places. So, for example, a market buy order and market sell order could be executed at the midpoint between the current bid and offer prices, which may be in more than two decimal places. Also, a broker could pre-match a buy order from one customer and sell order from another customer at a price with more than two decimal places and then submit the transaction to the exchange for immediate execution.

In addition, certain trading systems could allow two institutional investors to negotiate a transaction on a private one-to-one basis, which could be priced with more than two decimal places and then submitted for immediate execution. The SEC has also granted some exemptions from the rule to facilitate similar sorts of institutional investor scenarios, but average retail investors probably wouldn't be able to get involved.

When any of the above kinds of transactions are executed, they would show up in your system as the last executed trade and would have more than two decimal places. However, the bid and offer prices in your system should not be showing up with more than two decimal places (if they are, then there's probably something I don't understand about the rules).

For stocks trading below $1, the rule allows orders to be priced in up to four decimal places. So the bid, offer, and last executed quotes showing up in your system for sub-$1 stocks could have up to four decimal places. If Questrade doesn't allow you to to enter limit orders of four decimal places for these stocks, that's just their policy. There are definitely other online retail brokers that allow it (I know that Scottrade and TradeKing allow it; others probably do too).
posted by zerzura at 12:13 PM on June 30

Yeah, I was mistaken in regard to stocks that trade beneath a dollar - they go out four digits, exactly as zerzura says.
posted by malocchio at 12:24 PM on June 30

Maye Q-trade does on less than $1 stocks, I haven't tried that yet.

Another question: what did GM close at on its last day on the nyse? And did shareholders receive one share of GMGMQ for every share of GM they had?
posted by Penelope at 12:26 PM on June 30

Yet another question...why are AIG, C, etc all down today? THanks for any answers.
posted by Penelope at 12:30 PM on June 30

I believe GM was delisted on June 2 - closing price on 6/2 was $0.61 (close on 6/1 was $0.75). The delisting shouldn't affect the number of outstanding shares, but these are exceptional times, so there may be something I missed.

I don't see much specifically about C today. Financials in general are taking a hit due to regulatory issues facing STT and a possible settlement in a civil suit against UBS.

AIG warned yesterday that "if credit markets continue to deteriorate, the company could face unrealized losses on a portfolio of derivatives of AIG Financial Products Corp., the unit largely responsible for the parent company's collapse. "
posted by malocchio at 1:16 PM on June 30